Valuation law firms is an exercise that will probably become easier as more law firms get listed on stock exchanges: you will simply have to look at the public share price. (There is already at least one law firm listed in Australia, and I bet we won’t have to wait for long before seeing some law firms IPOs in London), but until it becomes the norm, how can the value of a law firm be evaluated?
Law firm valuation may be needed in several circumstances: law firm mergers, sale of a law firm, transmission of the firm by the founder to the next generation, retirement plan for older lawyers, financial conditions for partnership step in for new partners, etc.
For example, assuming a private equity fund would like to take a 30% equity stake in your firm, and assuming this would be OK under bar rules, how much would they have to pay?
With legions of baby-boomers nearing retirement age, law firms, like other business, will have to pass on to new owners, and the question of valuation will become critical.
All too often, the fact is that law firms are worth nothing or not much. The reason is that lawyers spend their lifetime working on legal issues for clients, and there is no doubt that their work is valuable, but they neglegt the task of building value within the organisation itself. The firm is too often just the place where lawyers perform their business, and not an organisation where value is being built and accumulated.
Behind the question of law firm valuation (how much is your firm worth), the real question is, “How can you transform your firm in an organisation with intrinsic value?”
Antoine Henry de Frahan
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